U.S. regional-bank shares continued to decline on Monday following remarks made by Federal Reserve Chair Jerome Powell. The SPDR Regional Banking ETF (KRE) was down 1.6% in recent trading, adding to a 7.2% drop from the previous week. This marked the biggest weekly decline for the ETF since June 23 of the previous year.
The latest round of weakness in regional-bank shares was initiated by New York Community Bancorp Inc. (NYCB), which reported an unexpected quarterly loss, reduced its dividend, and increased its loan-loss provisions. These actions shocked analysts and reignited concerns about the sector’s exposure to struggling commercial-real-estate loans. NYCB’s shares experienced a 37% drop, the largest single-day decline in the company’s history, while KRE saw double-digit decreases between Wednesday and Thursday, the ETF’s largest two-day drop since March 2023.
The Federal Reserve had to intervene last March after three U.S. banks, including Signature Bank, failed consecutively. This required the establishment of a new credit facility to support the banking system. Peter Winter, an analyst at D.A. Davidson, attributed Monday’s weakness in regional-bank shares to Powell’s recent interview on “60 Minutes” in which he mentioned that the central bank would likely delay interest rate cuts.
Lower interest rates would alleviate pressure on borrowers struggling to repay loans at current levels, thereby benefiting the entire sector from a credit perspective. However, Powell’s remarks dampened market expectations for an interest rate cut at the upcoming March meeting of the Federal Reserve.
The decline in U.S. regional-bank shares serves as a reminder of the vulnerability of the sector to market sentiment and economic indicators. Traders will be closely watching future developments, particularly any indications of the Federal Reserve’s stance on interest rates.
Frequently Asked Questions (FAQ) about the Decline in U.S. Regional-Bank Shares:
1. Why have U.S. regional-bank shares been declining?
U.S. regional-bank shares have been declining due to concerns about the sector’s exposure to struggling commercial-real-estate loans and a recent unexpected quarterly loss reported by New York Community Bancorp Inc (NYCB).
2. What actions did NYCB take that shocked analysts?
NYCB reported an unexpected quarterly loss, reduced its dividend, and increased its loan-loss provisions, which caused analysts to be surprised and worried about the sector’s health.
3. What was the impact of NYCB’s actions on the stock market?
NYCB’s shares experienced a 37% drop, the largest single-day decline in the company’s history. This drop also contributed to the decline in the SPDR Regional Banking ETF (KRE).
4. Why have regional-bank shares been impacted by Powell’s interview?
Federal Reserve Chair Jerome Powell’s recent statements on “60 Minutes” indicated that the central bank would likely delay interest rate cuts. This dampened market expectations for an interest rate cut at the upcoming Federal Reserve meeting, which negatively impacted regional-bank shares.
5. How did the decline in regional-bank shares highlight the vulnerability of the sector?
The decline in U.S. regional-bank shares serves as a reminder that the sector is sensitive to market sentiment and economic indicators. Traders will closely watch future developments, especially any indications of the Federal Reserve’s stance on interest rates.
Key Terms:
1. SPDR Regional Banking ETF (KRE): An exchange-traded fund that tracks the performance of regional banks in the United States.
2. New York Community Bancorp Inc. (NYCB): A bank holding company that operates through its subsidiary, New York Community Bank, which provides banking services to consumers and businesses.
3. Loan-loss provisions: The amount of money that a bank sets aside, as an expense, to cover potential losses from loans that may not be repaid.
4. Federal Reserve: The central banking system of the United States, responsible for conducting monetary policy and regulating the banking industry.
Related Links:
1. SPDR Regional Banking ETF
2. New York Community Bancorp Inc.
3. Federal Reserve